CMBS refinance
By Brad Beattie, Director, Capital Markets, Janover Capital LLC · Published
A CMBS refinance either replaces an existing loan with a new CMBS loan or pays off a CMBS loan with new debt. The new loan is sized on today’s income, value and rates. The old CMBS loan is paid off at par during its open period, a few payments before maturity, or earlier through defeasance or yield maintenance.
Refinancing into a CMBS loan
Owners usually move into CMBS from a bank loan that is maturing or has recourse they want gone, or from a bridge loan once the property is stabilized. Refinancing is the main use of conduit money: in the BANK5 2025-5YR14 pool, 21 of 25 loans, 82.7% of the balance, were refinancings (prospectus, loan purpose table). The process is the same as any CMBS loan; see how to get a CMBS loan. Two things are specific to a refinance:
- Your existing lender’s payoff terms. Bank loans often prepay freely or with a step-down fee; bridge loans may have a minimum interest period or exit fee. Read the note before you sign a CMBS application.
- Cash in or cash out. If the new loan exceeds the payoff and costs, the difference is a cash-out refinance. If it falls short, you bring cash.
Refinancing out of a CMBS loan
The payoff window
| Period | How you pay off | Cost |
|---|---|---|
| Lockout | Not allowed (defeasance not allowed in the first 2 years after the trust starts) | None available |
| After lockout | Defeasance or yield maintenance, per the loan | Can be large when rates have fallen; smaller when they have risen, though yield maintenance often has a minimum premium |
| Open period | Prepay at par | No premium |
| After maturity | Pay in full | Default interest, and a transfer to special servicing without a signed refinancing commitment |
The two-year bar on defeasance comes from the REMIC rules (26 CFR 1.860G-2(a)(8)). Open periods in the BANK5 2025-5YR14 pool ran 4 to 7 monthly payments, with 7 the most common (prospectus, p. 224). Estimate the cost of leaving early with the defeasance calculator or yield maintenance calculator, and compare it against waiting.
The maturity line
If the balloon is not paid, the loan becomes a servicing transfer event under the pooling and servicing agreement, unless the borrower has delivered a signed refinancing commitment or sale contract that closes within the agreement’s window. In the BANK5 2025-5YR14 agreement that window is 120 days, and a payoff inside it avoids the special servicer’s workout and liquidation fees on the balloon. Missed maturity: the 120-day rule and what to do when a CMBS loan is maturing.
Sizing the new loan
The new lender sizes the loan on current net operating income, a new appraisal and today’s rates, not on what the property supported when the old loan closed. Loans written at low coupons several years ago can face a smaller loan today even if income grew. Check yours:
- Enter your income, value and balance in the CMBS refinance calculator, which shows the gap between your balance and what a new loan would size to.
- Compare to the leverage on recent loans of your property type on CMBS loan requirements.
- See how loans maturing in your year look across the market on the CMBS maturity wall, and current coupons on CMBS loan rates.
Two real refinances, from one prospectus
The BANK5 2025-5YR14 prospectus publishes sources and uses for its largest loans. Two show the range:
| Loan | New loan | Old debt paid off | Sponsor equity in | Cash out | Closing costs |
|---|---|---|---|---|---|
| Grand Plaza (Chicago, 481-unit multifamily) | $160.0 million | $183.0 million | $33.6 million | None | $10.2 million |
| Harden Ranch Plaza (Salinas, CA, anchored retail) | $83.3 million | $79.8 million | $0.2 million | None | $1.3 million |
Grand Plaza is a cash-in refinance: the sponsor’s new equity was 17% of total sources, needed to retire debt the new loan could not cover. Harden Ranch Plaza paid off the old loan, funded $2.4 million of upfront reserves and $1.3 million of closing costs, and needed almost no new equity. Figures from the loans’ sources and uses tables in the prospectus.
When the new loan is short
| Option | What it is | Trade-off |
|---|---|---|
| Pay down with equity | Write a check to close the gap | Simplest; ties up cash |
| Preferred equity or mezzanine | Junior capital behind the new first mortgage | Expensive; the new loan must allow it. Supplemental financing |
| Bridge loan | Short floating-rate loan, often at higher leverage | Buys time; you refinance again later. CMBS vs bridge loans |
| Sell | Pay off from sale proceeds, or let a buyer assume | Ends the problem. Selling with a CMBS loan |
| Extension or modification | Negotiate more time with the servicer | Usually requires special servicing, fees and a paydown. Extension, modification |
Practical points
- Give notice. Loan agreements require written notice before a prepayment or defeasance; the period is in your prepayment section.
- Order the payoff early. For defeasance you need a defeasance consultant, a successor borrower and a securities purchase; for yield maintenance, a payoff statement from the servicer.
- Plan the lockbox exit. If the old loan has a hard lockbox, tenants need new payment instructions at closing.
- Mind the dates. Payment due dates in CMBS loans vary (the BANK5 pool used the 1st, 5th, 6th, 7th, 9th and 11th), and payoff is usually tied to them.
A refinance that is mostly about cash is covered in CMBS cash-out refinance. To start, gather the items on the CMBS loan checklist.
Questions people ask
When can I refinance a CMBS loan without a penalty?
In the open period, the last few monthly payments before maturity, when the loan can be prepaid at par. In the BANK5 2025-5YR14 pool the open periods ran 4 to 7 payments. Before that, payoff needs defeasance or yield maintenance, and during an initial lockout it may not be allowed at all.
How early should I start a CMBS refinance?
Early enough to close inside the open period, which means starting well before it opens: term sheets, reports, credit committee and loan documents take time, and a shortfall takes longer to solve than a plain refinance. If maturity passes without a payoff, the loan can transfer to the special servicer.
What happens to my reserves when I refinance?
Reserve balances held by the servicer on the old loan are generally released at payoff under the terms of the loan agreement. The new lender may require fresh reserves at closing, so budget for both.
What if the new loan is smaller than the old one?
The gap has to come from somewhere: fresh equity, preferred equity or mezzanine debt, a bridge loan, a sale, or a negotiated extension with the servicer. Size the gap early with the refinance calculator.
Get a CMBS quote
Buying or refinancing stabilized commercial property? Send the deal to Janover Capital LLC and a capital markets advisor will reply within one business day.